Question

Which of the following statements about Statutory Accounting Principles is FALSE? I will upvote the fast and accurately reliable answer

Insurers can fully recognize written premiums as earned revenue to minimize their insolvency risk.

Because SAP strives to disclose financial information related to insurer insolvency, the statutory income (loss) amounts on income statements are often unreliable indicators of insurer profitability.

Insurers can only include certain type of assets on their balance sheets, which are called admitted assets.

Underwriting expenses are recognized immediately to provide a conservative view of the insurers' insolvency risk.

Answer 1

Insurers can fully recognize written premiums as earned revenue to minimize their insolvency risk.-FALSE

Written premiums for a policy during a reported period are generally defined as the amount of premium charged for that policy during the reporting period.Any premiums charged on a policy before its effective date will be deferred, not recognized as written premium until the effective date.The portion of the policy’s written premium for the unexpired policy risk is called the “unearned premium liability",a liability set up to defer recognition of the premium revenue. As the coverage period runs off, the unearned premium liability is taken down.

Because SAP strives to disclose financial information related to insurer insolvency, the statutory income (loss) amounts on income statements are often unreliable indicators of insurer profitability.-CORRECT

Insurers can only include certain type of assets on their balance sheets, which are called admitted assets.-CORRECT

Admitted assets are highly liquid and can readily be converted to cash. Only admitted assets can be included in the balance sheet of insurance companies. Nonadmitted assets, including furniture and fixtures, office machines and other illiquid assets, supplies, and premiums at least 90 days past due cannot be listed as assets on the balance sheet.

To make it easier to assess an insurance company’s financial position, state statutory accounting rules do not permit certain assets to be included on the balance sheet.

Underwriting expenses are recognized immediately to provide a conservative view of the insurer's insolvency risk-CORRECT

Underwriting expenses are costs and expenditures associated with underwriting activity. Underwriting expenses include a wide range of expenditures, and the exact definition differs for insurers and investment banks. As a major expense category, the lower these expenditures are as a proportion of underwriting activity, the higher the profitability of the insurer or investment bank.